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TMI Blog2018 (5) TMI 2144X X X X Extracts X X X X X X X X Extracts X X X X ..... , CIT, DR ORDER Per Dr. A. L. Saini: The captioned appeal filed by the Assessee, pertaining to Assessment Year 2012-13, is directed against a fair assessment order passed by the Assessing Officer u/s 144C read with section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ), dated 21.12.2016, which incorporates the directions given by the Dispute Resolution Panel ( DRP ) 2, New Delhi, order dated 07.10.2016. 2. The Grievances raised by the Assessee are as follows: 1. Erroneous determination of arm's length price by the learned TPO/AO for management services received by the Appellant 1.1. The DRP and the learned TPO/AO erred in making an adjustments of ₹ 68,81,619/- to the Arm's Length Price of the international transaction relating to Management and other administrative Services received by the Appellant by considering the ALP as NIL without followed any prescribed transfer pricing methods as per Income Tax Act, 1961; 1.2. The DRP and the learned TPO/AO erred in rejecting the transfer pricing documentation undertaken by the Appellant to satisfy the arm's length criteria with respect to the management and supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh order u/s 92CA(3) read with section 144C was passed by the TPO on 22.11.2013. The TPO in his order had made arm s length price adjustment to the tune of ₹ 68,81,619/-. The Assessing Officer as per the order of the TPO made the addition to the tune of ₹ 68,81,619/- as arm s length price on account of management services received by the assessee company. 4. When the case was referred to the TPO for determination of arm s length price in respect of management services, the ld. TPO observed that the entire services are stewardship in nature and received by the Associate Enterprises for maintenance of overall control of the group. The relevant observations of the ld. TPO are given below: The assessee has claimed payment of ₹ 68,81,619/- under the head management services fee paid to the AE. On examination of the details, it is noted that the services rendered by the AE is in the form of Intra-Group services. The issue came up for the examination in the TP proceeding for the AY 2011-12 by the TPO concerned and after due deliberation of the facts and relevant legal precedence and practices in the international transfer pricing, the TPO has differentiated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard. Ld AR also submitted that it is a group practice to maintain uniform standards by the AE. It is the key to rendering of services by the AE so as to maintain uniformity, operational supremacy and control on the varied group entities. The practice of such services is prima facie on account of need to shepherd the group entities to a standardized approach to all the issues, processes etc so as to convey identical impression and generate identical solutions also. It has been contended by the A/R in the course of the submission that the AE has also borne part of such expenses. This further buttresses the position taken by the TPO as the plain commercial transaction would not impel the AE to forego its costs/revenues unless there is a clear corporate motive to achieve standardization of actions/solutions so as to protect and enhance the group image and margins and also promote the entity as a whole. Though the direct and ostensibly visible benefit to the assessee by availing such services is not clear from the data furnished, yet, it may be reasonably assumed that the assessee did garner some nominal benefits by availing such services in form of trouble shooting at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities received by the assessee are for the direct and proximate benefit of the parent company. By way of reduction in cost, assessee was able to remain cost effective and compete in the market place. The assessee derived the advantage of the specialized skill of the purchase department of Chryso SAS since they have long standing relationships and experience with the suppliers of raw materials. With this background, the ld. Counsel for the assessee submitted before us that the said issue is squarely covered by the Hon ble ITAT Kolkata in the assessee s own case, in ITA No.127/Kol/2016 Assessment Year 2011-12 dated 05.04.2017 wherein it was held as follows: 16. With regard to the payment of Management Service charges to AE by the assessee, we find that the assessee had clearly demonstrated that management services have resulted in effective cost savings by way of an effective purchase function, technical assistance in relation to certain products being provided by AE (the expertise of which was not available with assessee) and other ancillary functions like IT management for which the assessee did not have requisite staff to perform functions. The services were necessary for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld TPO s contention of questioning the commercial justification for the services is totally uncalled for. The ld AR also submitted that it is a group practice to maintain uniform standards by the AE. It is the key to rendering of services by the AE so as to maintain uniformity, operational supremacy and control on the varied group entities. The practice of such services is prima facie on account of need to shepherd the group entities to a standardized approach to all the issues, processes etc. so as to convey identical impression and generate identical solutions also. We find lot of force in this argument of the ld AR that the services rendered by the AE to the assessee in the form of uniform policies and practices and standardized approach to all the issues by having common attestation functions across the globe would greatly assist in the consolidation at global level and hence to that extent the necessity of AE rendering the managerial services to the assessee and its group companies is justified. Once the same is justified, there is no harm in making payment for those services. We hold that the ld TPO ought not to have determined the ALP of the management charges at Rs Nil b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the issue is whether an independent entity would have paid for such services. Importantly, in reaching this conclusion, neither the Revenue, nor this Court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee-activities for which, according to the assessee's claim-interaction with IBM's regional offices in Singapore and the United States was necessary. These services cannot - as the Income-tax Appellate Tribunal correctly surmised-be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be second- guessed by the Revenue. [brackets provided by us] 16.1. We also find that the co-ordinate bench of this tribunal in the case of DCIT vs Bata India Ltd reported in (2016) 69 taxmann.com 120 (Kolkata Trib) dated 6.4.2016 had considered the decisions of Hon ble Delhi High Court in the case of CIT vs EKL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were provided in order to meet specific need of recipient of the services. - The economic and commercial benefits derived by the recipient of intragroup services. - In comparable circumstances an independent enterprise would be willing to pay the price for such services? - An independent third party would be willing and able to provide such services? Whether payment made to AE meets ALP criterion will be determined, keeping in mind all the above factors, as well. 29. Keeping in mind the principles emanating from the aforesaid decisions, we shall now proceed to examine the material on record to see the nature of services received by the Assessee and as to whether the same were at Arm's Length. 47. In the light of the discussion in paragraphs 30 to 46, We hold that the Assessee has established the nature of services including quantum of services received by the related party, that services were provided in order to meet specific need of the Assessee for such services, the economic and commercial benefits derived by the Assessee of intragroup services. 16.2. We also find that in the recent decision of the Hon ble Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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